A surge of innovation often follows major episodes of trade liberalization. This paper proposes a novel channel through which trade liberalization may encourage firm innovations by largely removing policy uncertainties in the destination market. To verify this linkage, the authors adopt a difference-in-differences approach to examine the impact of a reduction in trade policy uncertainty, due to China's WTO accession in 2001, on firm innovation activities. The authors find that this uncertainty reduction significantly encourages firms' patent applications, investment in capital assets and imports of intermediate inputs.

Hong Ma specializes in International Trade and his research has been published in the Economic Journal, the Macroeconomic Dynamics, the World Economy, and other journals. Professor Ma holds a PhD in Economics from the University of California.